Currency Market Analysis

Jun 19, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar stabilized after a Fed-induced fall to one-month lows, though it was still on track to end a third straight week in the red. The dollar has sputtered in June as the economy’s uneven rebound from a first quarter fall has dampened expectations for U.S. interest rates to head higher. The Fed this week offered a vague signal that rates could rise this year if the economy continues to improve. But uncertainty over the timing of a move has weighed on the dollar. Moreover, once rates do rise the Fed has said it would go slow, which has diluted the positive to the dollar. Sharing the limelight with the Fed has been Europe’s festering crisis with Greece. The lack of a deal for more aid for Greece has caused many to cash in on the euro’s week of out performance. Underscoring the severity of the crisis and the growing chance of a Greek bankruptcy, Greeks in droves have pulled money from area banks, reportedly to the tune of billions of euros this week alone. Sterling was the week’s shining star, getting a safe haven bid from the Greek debt crisis while solid U.K. data also helped. The loonie’s rise to one-month highs this week will be tested by local data today on the consumer.


The dollar bounced above one-month lows though sentiment was still shaky. Mostly worrisome Greek headlines dominated news flows Friday which worked in the safer dollar’s favor. The dollar’s mixed fundamental shape will leave it vulnerable to further fragility over the short run. The longer run outlook remains favorable with the Fed on course to raise rates sooner or later. With the Fed eyeing a broad range of data to help it decide when to boost rates, markets next week will hone in on U.S. data on durable goods Tuesday, revised first quarter growth Wednesday, and critical data on the consumer and inflation Thursday. Constructive outcomes would help the rate hike cause and bode better for the dollar.


The loonie’s rise this week to one-month highs had more to do with the weaker dollar south of the border than Canada’s own economic merit. The loonie lost ground after core inflation slowed a tick to 2.2 percent annually in May while the big negative came from a surprise 0.1 percent fall in retail sales in April. Oil also weakened below $60, weighing on the commodity currency. A lack of much Canadian data over the coming week should see the loonie take its main cues from drivers outside its borders. Any worsening in the Greek debt crisis would augur volatility for risk sensitive currencies such as Canada’s.


The euro’s loss of ground Friday was a clear sign of markets losing confidence in the Greek debt saga ending positively. A fear that Greece could be days away from default caused many to cash in on the euro’s June uptrend, having ended the month of May below $1.10. The situation remains fluid and if and when a deal for more aid for Greece is reached in time to avert disaster, the euro would be in line to strengthen in relief. The coming week will be all about Greece and to a lesser extent news on area business confidence and Germany’s Ifo index of business sentiment on Wednesday.


Sterling ducked a little under seven-month highs but sentiment remained strong after a torrid week of out performance. The pound shined as Greece’s debt crisis sparked safe haven demand for the pound, gains that were compounded by data and remarks from a U.K. central bank that suggested interest rates could rise a bit sooner, perhaps during the first half of 2016.

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